The risks associated with devious and dishonest clients, and how employees and former employees are protected under the Master Policy

The vast majority of clients are entirely honest and straightforward. Regrettably, the occasional client proves to be devious or downright dishonest. Sadly, the actings of such clients can lead to problems for their solicitors, sometimes claims, even though the solicitors have acted in good faith. Consider some examples involving executry administration and security work.

Executry administration – dishonest beneficiary

A solicitor was instructed to wind up an intestate estate. His instructions came from a nephew of an old lady who had never been married and had died leaving no surviving parents, siblings, children and no other relatives apart from the nephew and his own children. At least that was what the nephew told the solicitor. He failed to advise the solicitor that there was a neice, the nephew’s estranged sister, who had emigrated to Australia years earlier.

The neice got wind of her aunt’s death and ultimately made contact with the solicitor looking for her share of the estate. By this time, the bulk of the estate had been distributed to the nephew. It emerged that the nephew had substantial debts and it was not possible to recover the full amount of the overpayment.

Would you have detected the nephew’s dishonesty? Would you have accepted at face value the facts supplied by the nephew? What steps would you have taken to verify the facts?  

Security work - mortgage fraud

A client instructed his solicitor to act for him in the purchase of a house. The client was borrowing a substantial part of the price. The solicitor was instructed to act for the lender. It subsequently emerged that the purchaser was in cahoots with (a) the seller of the property and (b) a surveyor and that a fraud had been committed on the lender. The seller had purchased the property at its true market price in a genuine transaction and he had entered into a sham deal four months later to sell the property to the solicitor’s purchaser client at an inflated price. The purchaser arranged a loan on the strength of the sham deal with the seller and the surveyor’s erroneous valuation. Very quickly, if not immediately, the mortgage repayments were in default and, following repossession and re-sale of the property, the lender discovered that the property was worth far less than the valuation figure.

Whether or not the solicitor would have any liability to the lender is a fairly complex matter depending on the particular facts and circumstances. Issues of contributory negligence may arise too. Ideally, you want to be in a position to avoid any accusation made by a lender.

Would you have spotted the suspicious circumstances and the dishonesty of the purchaser/borrower client? 

Security work - forged signatures

Claims have arisen that involve problems over the enforceability of securities. Some of these have arisen on account of allegations that spouses’ signatures on security deeds have been forged. The duties of solicitors to protect the interests of lenders have been the subject of litigation in England and Wales. Although the decisions do not necessarily represent the law in Scotland, it is well worth considering the cases to establish whatever lessons can be learned.

Zwebner v Mortgage Corporation Limited [1997] P.N.L.R. 504, Lloyd, J., Ch D. involved a loan to be secured over a property belonging to the borrower and another party. The solicitor instructed to act for the lender issued a report on title in which there was an undertaking that all appropriate documents would be properly executed on completion. The solicitor sent the security deed to the borrower for execution by both the borrower and his co-proprietor. On the borrower’s insolvency, the co-proprietor alleged that she was not bound by the security deed as her signature on the security deed had been forged. The lender was successful in recovering from the solicitor on the basis that, whether or not the solicitor had been at fault, the report on title amounted to a warranty that the security deed had been properly executed.

It is beyond the scope of this page to consider legalistically the implications of this decision. Suffice to say that the decision serves to identify an area of potential risk where solicitors act for lenders in relation to loan/security transactions.

The objective as always must be to do as much as reasonably practicable to minimise the risk of a problem arising at all so as to avoid becoming involved in an argument about duties of care. If your instructions require you to warrant that the security deeds are properly executed, how have you satisfied yourself before reporting to the lender that the signatures are genuine? If you cannot warrant that signatures are genuine (eg by seeing the spouse sign and seeing evidence of identity), do not do so.

How would you detect potential problems with the consent of a borrower’s spouse and spot a possible fraud?

For guidance on the wider issues arising in this area of practice see comments in the Parliament House Book (and the Solicitor’s Professional Handbook) under ‘Home Secured for Business Loan’.

Avoiding dishonest clients - risk management points

  • Always remember you are not obliged to accept any client or any individual transaction.
  • Consider what your criteria should be for taking on a client or a particular piec of work.
  • Establish why the client contacted you/your firm.
  • Check the source of the recommendation.
  • Satisfy yourself that the client does exist.

For companies, obtain evidence of incorporation.

  • Does the person instructing you have authority? Consider, for instance, an individual instructing you on behalf of his or her spouse.
  • Are there any conflicts or potential conflicts?
  • Consider the implications for the firm’s reputation in taking on a particular client or piece of work.

Merrett v Babb

Personal Liability of Employees for Professional Advice

In the case of Merrett v Babb (a case concerning a surveyor and a negligent survey report), the Court of Appeal has ruled that employees are vulnerable to claims brought directly against them for advice given on behalf of their employers. This is being hailed, at least in England, as a landmark test case.

The case concerned a situation in which, following the insolvency of his former employer, Mr John Babb, a member of the RICS, found himself personally liable for a mortgage valuation that he had carried out over seven years earlier.

While the case concerned a surveyor, the Court of Appeal’s ruling is reckoned to impact upon all sectors and professions where employees give specialist advice to clients on behalf of their employers.

The Court of Appeal’s decision appears to be consistent with a statement of the law here by Gordon Junor, advocate, in his article in Scots Law Times 1998 p275. Mr Junor states -

“The employing and the employed solicitor alike will - or should be - aware that, in law, they may be jointly and severally liable for any negligence on the part of the employed solicitor acting in the course of his or her employment... It is well settled, at least in general terms, that an employer (vicariously) and employee (directly) can be held jointly and severally liable for negligence on the part of the employee in the course of his employment with the employers - on the simple view that all persons must be held responsible for their own actings.”

Master Policy cover position

It is appropriate to confirm that position with regard to cover under the Master Policy for the benefit of employed solicitors (and formerly employed solicitors), viz:

  • subject to various terms and conditions, the Master Policy provides cover for at least £1,000,000, £1,250,000 from 1 November 2001, for the benefit of every practice even if it is a ceased practice
  • cover under the Master Policy operates for the benefit not only of principals, former principals and the personal representatives  of former principals but also for the benefit of employees, former employees and the personal representatives of former employees
  • employees, former employees and their personal representatives are insured parties in their own right and may invoke the benefit of the Master Policy for their personal protection and the consent of the principals of the practice is not required
  • the scope of Master Policy cover is wide and the circumstances in which cover would be declined by the insurers are few and far between

The information in this page is (a) intended to provide guidance on matters of practical risk management and not on issues of law and (b) is necessarily of a generalised nature. It is not specific to any practice or to any individual and should not be relied on as stating the correct legal position.

Alistair Sim is Associate Director in the Professional Liabilities Division at Marsh UK Limited (e-mail:

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